ONS construction output slows, headed for tougher times

UK construction activity declined more than expected last month, according to official figures out on Friday, while sector experts said the sector looks set for a tough time in 2017.

The Office for National Statistics on Friday revealed construction output fell 0.4%, slightly worse than the consensus forecast for a drop of 0.2%.

Output deteriorated from the previous month's 1.8% gain, which had benefited from an upward revision.

On a yearly basis, construction grew 2.0%, well up on the 0.3% expected but slower than the revised previous 2.6%.

Thanks to significant revisions that indicated the slowdown in the construction sector last year was less severe than at first seemed, the ONS estimated output increased by 2.4% year-over-year in 2016, rather than 1.5%.

Private housing construction was the strongest contributor to the sector, expanding 13.1%, while private commercial work increased 8.6%, but private industrial work fell by 9.5% and infrastructure work declined by 9.2%.

The construction sector, however, still looks set for a tough time in 2017, said Sam Tombs at Pantheon Macroeconomics., noting downbeat recent surveys.

"The construction PMI points on past form to zero growth in construction output in Q1, while the EC’s economic sentiment survey points to a small fall in output.

"The planned 6.7% rise in public sector gross investment in 2017/18 will help the sector, but commercial work likely will be dampened by firms’ Brexit worries, while housebuilding will struggle as households’ real incomes flatline this year."

Michael Thirkettle, chief executive of leading construction and property consultancy McBains Cooper, said the ONS numbers show any recovery for construction is "fragile at best".

Pointing out that the Spring Budget's national insurance rises and loss of tax relief on dividend payments would hit the near-167,000 construction workers who have self-employed status - "people who are vital for ensuring the government’s housebuilding targets are met".

“In the short to medium term, worries over Brexit remain a constant," Thirkettle said.

"We stand to lose a significant number of the 12% of UK construction workers who come from EU countries as a result of Brexit, which means we will be in a parlous situation. Building new homes to meet the government’s targets for solving the housing crisis are already significantly behind and the recent Housing White Paper really didn’t do enough to make planning processes simpler or free up more land."

He said the government needed to do more to discourage UK workers from leaving the industry and European workers concerned over Brexit from throwing the towel in and returning home.”